I am the former Co-CEO of KP Media, a leading Publisher in Ukraine. In addition to being the leading news organization in Ukraine (Korrespondent, Kyiv Post), we also owned the largest online business, Bigmir.net. I'm now back in the US, consulting and speaking in the areas of Digital Marketing and Digital innovation. You can find my website at www.DigitalTonto.com and follow me on Twitter @DigitalTonto.

The Rise of Artificial Intelligence Could Lead to Apple's Downfall

CUPERTINO, CA - OCTOBER 04: When Apple CEO Tim Cook introduced the iPhone 4s in 2011, he probably had no idea what he was unleashing. Getty Images via @daylife)

When Apple launched the iPhone 4S in the fall of 2011, it shattered sales records, selling over 4 million units in the first three days.

A big part of that success was Siri, the revolutionary new interface which responds to voice commands.

It appeared that Steve Jobs had done it again. (This time, from beyond the grave no less!). Back in the ‘80’s, he had transformed personal computing by introducing the public to the graphical user interface (first developed at Xerox PARC). Then came the first iPhone with its multi-touch interface, revolutionary for its time (but developed by FingerWorks, acquired by Apple in 2005).

Now, Apple appeared to be taking it to the next level, with an interface that didn’t require hands at all. Once again Siri was not only a technological triumph, but a smart business move. Rather than spend years lavishing billions of dollars on an R&D program, Apple picked up Siri for a reported $200 million. Even better, the initial research was financed by DARPA. (Thanks Uncle Sam!)

Alas, things were not what they seemed. In fact, Siri could signal the beginning of the end for Apple.

First, the obvious. When you ask Siri for something, it inevitably sends you to Google. So while Apple impresses consumers, their arch-rival at Mountain View profits. Apple has since launched their own maps (not very effectively, I might add), but their only other option for basic search is Microsoft, which wouldn’t be much of an improvement in terms of competitive concerns.

Second, even Siri itself is not truly an Apple product. Much of the critical technology is provided by Nuance Communications, a leader in speech recognition. So it’s hard to see how Siri gives Apple any competitive advantage at all.

Probably most importantly, with Apple’s paltry R&D budget, it is unlikely that they will be able to compete beyond interfaces and devices (and with the launch of Samsung’s Galaxy 4S, even their position there seems to be eroding). As I wrote in an earlier post for Forbes, a variety of companies, ranging from Facebook to IBM are investing heavily in systems that combine natural language with Big Data.

Apple, for its part, doesn’t seem to have any significant artificial intelligence platform beyond the Siri interface and no big data effort to speak of. If they did, we would know about it. Despite Apple’s well deserved reputation for secrecy, even they wouldn’t be able to hide hiring the top notch talent that they would need to build a strong artificial intelligence platform. There’s just not that much of it around.

So it appears that Apple is at a crossroads. They have plenty of cash and leadership positions in both smartphones and tablets, two high growth categories that are far from saturation. Moreover, their notebook and iPod businesses continue to be wildly profitable. However, it’s tough to see how Apple will compete 3-5 years from now when Big Data and artificial intelligence become an important part of the consumer experience.

As I’ve pointed out before, it’s not clear that Tim Cook understands the problem. He seems to believe that Apple can continue to operate as it always did, making “insanely great” products by improving existing technology. However, every company needs to pivot at some point and it seems like time is running out for Apple.

Oh, and one more thing. Nuance Communications, the company that provides the technology that Siri runs on, was originally called Kurzweil Computer Products Inc. Its founder, Ray Kurzweil, recently joined Google as its Director of Engineering.

- Greg

(Disclosure: I have an indirect financial interest in both Apple and Google through a fund)

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Apple uses Siri to parse out searches, diminishing Google’s foothold in mobile. And because Apple effectively controls mobile search for a valuable demographic, the company can charge a premium for access to these consumers.

That’s possible, but unlikely. Search is pretty difficult and while people have been talking about the possibilities of narrow search for years, nothing has really panned out on anything near the level that Apple would need it to.

Further, the pattern recognition technologies of Google Now and Microsoft Kinect are superior to Siri and, as I mentioned, Ray Kurzweil is now at Google.

This article is so crazy I don’t know where to begin. I’ll just make two points.

Siri is not an Apple technology? Uh, yeah. Apple bought it the same way it has bought many other small tech companies. That’s the way most big tech companies operate. Google, Microsoft, etc. etc. have all bought technologies and incorporated them.

Pundits have been strutting and fretting about Apple “being at a crossroads” since … well nearly forever. After the iPod was a hit … after the iPhone cvhangd everything … after the iPad quietly began destroying the PC business …

Oh my. How can the world’s most value company continue raking in buckets of cash the way it’s been doing quarter after quarter after quarter?

Greg, I hate to say it but you sound feckless and whiney. Apple is sticking to its plan, unbothered by what others are doing.

To suggest “much of the critical technology is provided by Nuance Communications” is rather shallow thinking. Voice recognition is but a minuscule part. Understanding the meaning of voice and providing accurate feedback is the goal of artificial intelligence. The goal goes far beyond a simple link to an answer from Google, which it is not. You seem to not be aware of Apple’s purchase of Siri, a spinoff of SRI International. Read up on it.

Given that you believe Apple has a “paltry R&D budget”, what dollar amount do you see as appropriate? Is that a good measure of innovation?

I don’t think here is the place to discuss the relative merits between Markov models and neural nets, but voice recognition is generally considered an important part of artificial intelligence. No one really knows how much of Siri technology is driven by Nuance, because that information is closely guarded, but it’s generally considered to be a critical part.

As for Apple’s R&D budget, I addressed this in an earlier post (http://www.forbes.com/sites/gregsatell/2013/01/31/lets-all-calm-down-and-get-some-perspective-on-apple-2/). Apple spends about 2% of it’s revenues on R&D, vs. more than 10% for Google and Microsoft. IBM is somewhere in between.

So, while I don’t know exactly what the right number for Apple would be, they are clearly lagging.